BUS LAW Chapter 18

Ultra Vires Doctrine

"beyond the power"; acts of a corporation that are beyond its express and implied powers

Publicly held corporation

(Public company) any corporation whose shares are publicly traded in a securities market, such as the NYSE or NASDAQ

Factors that lead courts to pierce the corporate veil

1. A party is tricked or misled into dealing with the corporation rather than the individual 2. The corporation is set up never to make a profit or always to be insolvent 3. The corporation is formed to evade an existing legal obligation 4. Statutory corporate formalities, such as holding required corporate meetings, are not followed 5. Personal or corporate interests are mixed together (commingled) to such an extent that the corporation has no separate identity

S Corporations

A close corporation that meets the qualifying requirements specified in Subchapter S of the Internal Revenue Code. Allows single taxation Requirements: 1. The corporation must be a domestic corporation. 2. The corporation must not be a member of an affiliated group of corporations. 3. The shareholders must be individuals, estates, or certain trusts and tax-exempt organizations. Partnerships and nonqualifying trusts cannot be shareholders. Corporations can be shareholders under certain circumstances. 4. The corporation must have no more than one hundred shareholders. 5. The corporation must have only one class of stock, although it is not necessary that all shareholders have the same voting rights. 6. No shareholder of the corporation may be a nonresident alien

Derivative Action

A shareholder thinks something has happened and the corporation should file a suit. Send a letter to the board of directors that is a demand, then the board has to vote or respond within 30 days. If they don't do either, then the shareholder can bring forward the suit

Shareholder agreement

A way the close corporation can effect restrictions on transferability. This can also provide for proportional control when one of the original shareholders dies.

Holding Company

Also referred to as a parent company; a company whose business activity consists of holding shares in another company Typically, a holding company is established in a low-tax or no-tax offshore jurisdiction

Limited Liability of Shareholders

Corporate shareholders are not personally liable for the obligations of the corporation beyond the extent of their investments.

Person

Corporations are recognized under U.S. law as legal persons rather than natural persons. Enjoys many of the same rights and privileges under state and federal law that U.S. citizens enjoy.

Nonprofit Corporations

Corporations formed for purposes other than profit; allows various groups to own property and to form contracts without exposing the individual members to personal liability

Alter-ego theory

Courts pierce the corporate veil under the theory that the corporation was not operated as a separate entity. Rather, it was just another side (the alter ego) of the individual or group that actually controlled the corporation. -Applied when a corp is so dominated and controlled by an individual that the separate identities of the person and the corp are no longer distinct -Used to avoid injustice or fraud that would result if wrongdoers were allowed to hide behind the protection of limited liability

Preferred Stock

Holders of this usually have priority over holders of common stock as to dividends and payment on dissolution of the corporation but frequently don't have the right to vote.

De Facto Corporation

If the defect in formation is substantial, the outcome will vary depending on the jurisdiction. Following 3 requirements: 1. A state statute exists under which the corporation can be validly incorporated 2. The parties have made a good faith attempt to comply with the statute 3. The parties have already undertaken to do business as a corporation

Corporation

Legal entity created and recognized by state law. The business entity can have one or more owners (called shareholders), and it operates under a name distinct from the names of its owners. Both individuals and other businesses can be shareholders. Double Taxation

Professional Corporations

Physicians, lawyers, dentists, and accountants; typically identified by P.C., S.C. (service corporation), or P.A. (professional association)

Express powers

The express powers of a corp are found in its articles of incorporation, in the law of the state of incorporation, and in the state and federal constitutions The following order of priority is used if a conflict arises among the various documents involving a corporation: 1. The U.S. Constitution 2. State Constitutions 3. State statutes 4. The articles of incorporation 5. Bylaws 6. Resolutions of the board of directors

Alien corporation

a corporation formed in another country but doing business in the US is referred to in the United States as an alien corp

Foreign corporation

a corporation formed in one state but doing business in another is referred to in the second state as a foreign corporation

Outside director

a director who does not hold a management position

Shareholders

all info on pages 405-407

Voting Trust

an agreement under which a shareholder assigns the right to vote his or her shares to a trustee, usually for a specified period of time.

Securities

corporations are financed by these, including stocks and bonds

Private corporations

created either wholly or in part for private benefit (for profit). Most corporations are private.

Bonds

debt securities; represent the borrowing of funds by firms and governments

Public corporation

formed by the government to meet some political or governmental purpose.

De Jure Corporation

if a corporation has substantially complied with all conditions precedent to incorporation, it has rightful and lawful existence

Pierce the corporate veil

in certain limited situations, courts can impose liability on shareholders for the corporation's obligations; exposing the shareholders to personal liability (page 399)

Bylaws

internal rules of management for the corporation

Close corporation

one whose shares are held by relatively few persons, often members of a family. Also referred to as closely held, family, or privately held corporations

Duty of Loyalty

page 403

Watered stock

when a corporation issues shares for less than their fair market value

shareholder's derivative suit

when the corporation is harmed by the actions of a third party, directors can bring a lawsuit in the name of the corp against that party. If the corp directors fail to bring a lawsuit, shareholders can do so "derivatively"

Business Judgment Rule

A corporate director or officer will not be liable to the corporation or to its shareholders for honest mistakes of judgment and bad business decisions 1. Took reasonable steps to become informed about the matter 2. Had a rational basis for her or his decision 3. Did not have a conflict between her or his personal interest and the interest of the corporation

Criminal Law

A corporation may be held liable for the criminal acts of its agents and employees. Corporations cannot be imprisoned but can be fined greatly.

Certificate of authority

A corporation must obtain this in any state in which it plans to do business

Articles of incorporation

Primary document needed to incorporate a business; include basic info about the corporation and serve as a primary source of authority for its future organization and business functions. (page 395)

Crowdfunding

a cooperative activity in which people network and pool funds and other resources via the internet to assist a cause or invest in a venture

Benefit Corporation

a for-profit corporation that seeks to have a material positive impact on society and the environment: 1. Purpose. Although it is for-profit, the purpose is to benefit the public as a whole 2. Accountability. Shareholders determine whether the company has achieved a material positive impact 3. Transparency. Must issue an annual benefit report on its overall social and environmental performance that uses a recognized third party standard to assess its performance

Directors

board of directors is the ultimate authority in every corp; have responsibility for all policy-making decisions necessary to the management of all corporate affairs.

Venture Capital

capital provided by professional, outside investors, to new business ventures. These are high risk investments but offer the potential for doing well-above-average returns at some point in the future

Inside director

director who is also an officer of the corporation

Right to participation

directors are entitled to participate in all board of directors' meetings and have a right to be notified of these meetings

Right to inspection

each director can access the corporation's books and records, facilities, and premises

Corporate officers

employees who run the daily business operations; elected by the board of directors.

Stocks

equity securities, represent the purchase of ownership in the business firm

Stock certificates

evidence ownership of a specified number of shares in the corporation

Private equity capital

firms use this to invest in existing and often, publicly traded, corporations

Domestic Corporations

referred to by its home state or the state in which it incorporates

Board of Directors

responsible for the overall management of the firms; members are elected by the shareholders.

Stock warrants

rights given by a company to buy stock at a stated price by a specified date

Preemptive rights

shareholder receives a preference over all other purchasers to subscribe or to purchase a prorated share of a new issue of stock; must be exercised within a specified time period, usually 30 days

Quorum

the minimum number of members of a body of officials or other group that must be present for business to be validly transacted

Common Stock

true ownership of a corporation; provides proportionate interest in the corporation with regard to control (voting rights), earnings, and net assets

Right to indemnification

when a director becomes involved in litigation by virtue of her or his position, right to reimbursement for the legal costs, fees, and damages incurred